All business is charity. Profits are a function of value added to society.
— John Ramsey, investor
When you ask people what they want to do with their lives, many will answer they want to “make an impact” or “leave [their] mark.” When pressed how they will do this, far more will answer that they want to do something with philanthropy — either start their own charity, or make money to donate to a nonprofit cause — than will answer they will go into business, create a product, and sell it.
Maybe they see profit as something dirty and envision the Wolf of Wall Street or Gordon Gekko when they think about the profit motive. Maybe they just think nonprofit work is the best way to make an impact for what they feel passionately about. Maybe they just think business is more about selling something than it is about creating value.
The thing with this perspective, though, is it misses the point of profit.
Profit is a function of value added to society*
When a consumer sees a product or service and purchases it, the consumer values the benefit yielded by the product or service greater than the price of the product or service. Similarly, when a seller agrees to sell a product for a certain price, they value the money gained from the exchange greater than their own product. Each party approaches the exchange and sees something to be gained from the other in exchange for something they themselves have. If they perceive the value of the exchange to be greater to them than not engaging in the exchange, they’ll engage. If not, they’ll go on their merry way.
When the exchange happens, both parties gain, not just the seller. The buyer leaves with a product they value more than the money they paid, and the seller leaves with money they valued at more than the money paid. The profit to the seller is an indicator that the product or service they sold adds value.
(This is why buyer’s remorse is such a painful feeling. If you weren’t sure of your purchase in the first place, then you may leave with a feeling of actually having lost out afterwards.)
All business is charity
Many charities focus on providing jobs, a stream of income, and opportunities to people who would otherwise not have them. These are noble goals, and some charities, like Habitat for Humanity, are quite good at them. The entrepreneur is also quite good at this.
A successful business venture may start as two or three people working out of their bedrooms, but in time needs employees, office space, services, and will continue to offer its product that adds value to society.
As the venture grows from a startup to a small business, and to a medium-sized business from that, and to a major company from that, more and more people’s lives are touched by opportunities. A factory may open up, providing opportunities for jobs to an impoverished community. New education opportunities arise. Living standards rise as the product not only offers more value to consumers’ lives, but increased business operations impact the community in greater ways.
This isn’t to say charity is necessarily inferior to entrepreneurship, but that entrepreneurship is often overlooked as a means of making a positive impact on the world. A handful of entrepreneurs can make a greater impact than a new school, subsidy, or public works project ever will, even if their impact is not as directly obvious.
*All else held equal. When people freely choose to engage in exchange. If somebody is forced to purchase something from a seller, or a seller is forced to sell something to a buyer, when they otherwise would not have engaged in the exchange, then any profit is a false signal.